Meadows Health Sys. E., Inc. v. Louisville/Jefferson Cnty. Metro Revenue Comm'n
| Decision Date | 03 August 2012 |
| Docket Number | No. 2009–CA–001839–MR.,2009–CA–001839–MR. |
| Parties | MEADOWS HEALTH SYSTEMS EAST, INC. and Meadows Health Systems South, Inc., Appellants v. The LOUISVILLE/JEFFERSON COUNTY METRO REVENUE COMMISSION, Appellee. |
| Court | Kentucky Court of Appeals |
375 S.W.3d 71
MEADOWS HEALTH SYSTEMS EAST, INC. and Meadows Health Systems South, Inc., Appellants
v.
The LOUISVILLE/JEFFERSON COUNTY METRO REVENUE COMMISSION, Appellee.
No. 2009–CA–001839–MR.
Court of Appeals of Kentucky.
Aug. 3, 2012.
[375 S.W.3d 72]
Kenneth S. Handmaker, Nicole S. Elver, Louisville, KY, for Appellant.
Michael J. O'Connell, Jefferson County Attorney, Terri A. Geraghty, Assistant Jefferson County Attorney, Louisville, KY, for Appellee.
Before ACREE, Chief Judge; STUMBO, Judge; LAMBERT,1 Senior Judge.
LAMBERT, Senior Judge:
Appellants, Meadows Health Systems East, Inc. (“Meadows East”) and Meadows Health Systems South, Inc. (“Meadows South”) (sometimes collectively referred to as “Appellants”), appeal from an order of the Jefferson Circuit Court denying their motion for summary judgment and rejecting their claims against the Louisville/Jefferson County Metro Revenue Commission. Appellants contend that Appellee violated Kentucky constitutional and statutory law by imposing an occupational license fee on capital gains from the sale of Appellants' business assets. After careful consideration, we conclude that the circuit
[375 S.W.3d 73]
court correctly denied Appellants' motion. Therefore, we affirm.
The facts of this case are undisputed. Appellants are Kentucky corporations that formerly owned and operated two long-term health care facilities in Jefferson County. In January 2002, Appellants sold substantially all of their respective assets in the facilities to Facility Holdings, LLC, a Florida limited liability company. The sale of these assets resulted in a complete divestiture of Appellants' Jefferson County business operations.
Following the sale, Meadows East filed a request for an extension of time within which to file its 2002 Occupational License Return and tendered an estimated payment of $81,916.00 under protest. Meadows South filed a similar request and tendered an estimated payment of $54,000.00 under protest. These protests were lodged primarily because Appellants believed that Section 3.1 of the “Regulations of the Louisville/Jefferson County Revenue Commission,” which allows for an occupational license fee to be assessed on a company's “net profits,” was unconstitutional as applied to capital gains from the sale of a business.
By letters dated November 24, 2003, counsel for Meadows East and Meadows South made a demand for a refund of $79,745.00 and $53,617.00, respectively, attributable to those portions of the occupational license fees allocable to the sale of the aforementioned assets. Appellee, by counsel, denied the claims for refund on the grounds that “the City of Louisville, Jefferson County and the Louisville/Jefferson County Metro Government Code of Ordinances specifically provide that net profit shall include ordinary and capital gains.”
Because Appellee had no additional administrative process or other procedure allowing a party to further challenge a license fee, Appellants filed an action in the Jefferson Circuit Court. Specifically, Appellants sought a declaratory judgment determining that Appellee's application of Section 3.1 in a manner imposing occupational license fees on capital gains realized from the sale of business assets not in the ordinary course of business violated Section 181 of the Kentucky Constitution and exceeded the statutory authority granted by the regulation's enabling statute, KRS 91.200. The parties agreed (and still do) that the material facts were undisputed.
On August 3, 2009, the circuit court entered an order denying Appellants' motion for summary judgment. The order provided the following justification for the court's decision:
The Court finds that capital gains realized from the sale of a business fall within the broad definition of “net profit” as defined in the Commission's regulations and the enabling statutes and ordinances. Although the sale of the business may not be a part of the regular operation of a business, if the sale generates net profits those profits are subject to the tax.
On September 16, 2009, the circuit court made the order of August 3, 2009, final and appealable. The present appeal followed.
The primary issue before this Court is whether the circuit court correctly determined that capital gains from the sale of Appellants' businesses are subject to the local occupational license fee referenced above. For reasons that follow, we hold that such gains are properly subject to the license fee and that the regulations challenged
[375 S.W.3d 74]
by Appellants do not run afoul of the Kentucky Constitution or KRS 91.200.
Section 181 of the Kentucky Constitution expressly authorizes the General Assembly to “delegate the power to counties, towns, cities and other municipal corporations, to impose and collect license fees ... on franchises, trades, occupations and professions.” Notably, Section 181 “requires no particular standard for measuring any tax.” Second St. Properties, Inc. v. Fiscal Court of Jefferson County, 445 S.W.2d 709, 712 (Ky.1969); see also City of Louisville v. Sebree, 308 Ky. 420, 426, 214 S.W.2d 248, 252 (1948). It has also been said that “[t]he authority to tax under this section is as far-reaching and as sweeping as language could make it. It would be difficult to find three words that cover wider fields of employment than trades, occupations, and professions.” Hager v. Walker, 128 Ky. 1, 107 S.W. 254, 256 (1908).
KRS 91.200 was enacted by the General Assembly to implement the authority granted to it by Section 181. It provides, in relevant part, as follows:
(1) The board of aldermen of every city of the first class, in addition to levying ad valorem taxes, may by ordinance impose license fees on franchises, provide for licensing any business, trade, occupation, or profession and the using, holding, or exhibiting of any animal, article, or other thing.
(2) License fees on a business, trade, occupation, or profession for revenue purposes may be imposed at a percentage rate not to exceed those hereinafter set forth on:
(a) Salaries, wages, commissions and other compensations earned by every person within the city for work done and services performed or rendered in the city (all of such being hereinafter collectively referred to as “wages”); and
(b) The net profits of all businesses, professions, or occupations from activities conducted in the city (hereinafter collectively referred to as “net profits”).
Thus, KRS 91.200(2)(b) allows a city to impose a license fee based on a percentage of “[t]he net profits of all businesses, professions, or occupations from activities conducted in the city[.]” This power “extends to all but the excepted activities stated in KRS 91.200, and as to all remaining activities is as comprehensive as the power expressly granted by Section 181.” Sebree, 308 Ky. at 427, 214 S.W.2d at 252.
Notably, KRS 91.200 does not specifically define what constitutes “net profits” or indicate what income, if any, might be exempt from the reach of this provision. Appellee contends that by failing to more particularly define “net profits,” the General Assembly has demonstrated the intent to delegate broad latitude to local governments in determining what constitutes such. We agree with this proposition. Cf. Second St. Properties, 445 S.W.2d at 712–13.
Pursuant to KRS 91.200, the Board of Aldermen of the City of Louisville enacted Section 112 of the City of Louisville Code of Ordinances.2 Consistent with KRS 91.200, Section 112.02 provides that the occupational license fee is measured by “the net profit of all businesses, professions, or occupations from activities conducted in the city.” Section 112.01 defines “net profit” as “[t]he taxable income from the operation of a business, profession, occupation, or enterprise for federal income
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tax purposes after provision for all costs and expenses incurred in the conduct thereof.” Section 112.01 further provides that as to partnerships and S-corporations, “net profit” also means “the licensee's gross receipts or sales from its trade, business, profession, or occupation including but not limited to interest, dividends, rents, royalties, ordinary and capital gains or losses, and other income as defined for federal income tax purposes” less certain income and deductions.
In Section 112.10 of the Code of Ordinances, the city of Louisville delegated to Appellee the authority to promulgate regulations relevant to the collection and administration of occupational license fees.3 With the authority granted by this ordinance, Appellee adopted its own “Regulations of the Louisville/Jefferson County Revenue Commission” regarding what constitutes “net profits.” These regulations are consistent with the provisions of the Code of Ordinances. For instance, Section 3.1 of the regulations generally addresses the occupational license fee on “net profits.” It provides, in relevant part, as follows:
The City of Louisville and Jefferson County impose a license fee measured by a percentage of the net profits of corporations, partnerships, fiduciaries, sole proprietors and other enterprises engaged in any business, profession, occupation or other activity in the...
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